Two Turbine Makers Dominate this High-Growth Market

By: Andy Obermueller

Posted: 4/29/2010 6:53:00 PM

Referenced Stocks: GE;VWDRY

If you thought Interior Secretary Ken Salazar's announcement
Wednesday of an offshore wind farm was big news for
alternative-energy investing, then you must have missed the far
bigger news from his Cabinet colleague, Energy Secretary Steven
Chu.

While Salazar was standing behind a rostrum touting a 130-turbine
wind-energy project in Nantucket Sound, Chu was quietly testifying
before the Senate Energy and Water Subcommittee. This testimony did
not make the front page, but its impact will prove to be far more
important.

As the editor of
Government-Driven Investing
, the only newsletter focused solely on leveraging government
action for portfolio gain, I pay very close attention to Dr. Chu.
He's one sharp cookie, probably the smartest and savviest member of
Mr. Obama's Cabinet. He's no mere grandstanding political
appointee; he really is the nation's leading energy expert.

Here's part of what Dr. Chu said before the committee:

"China is investing $44 billion by 2012 and $88 billion by 2020 in
ultra high-voltage transmission lines," he said. "These lines will
allow China to transmit power from huge wind and solar farms far
from its cities. [T]his is a clear sign of China's commitment to
developing renewable energy."

The Massachusetts wind farm, despite its coverage in the august
pages of
The New York Times
, is really a teeny project. It's 130 turbines that can produce 468
megawatts at a cost of $1 billion. (Roughly equal to one small
coal-fired power plant.) But China is spending $44 billion on power
lines alone to plug alternative energy sources into the grid.

Smart move. All the power in the world is worthless if it can't be
zapped onto a power grid.

Last July, oilman T. Boone Pickens had to cancel his West Texas
wind farm, which was slated to be one of the world's largest, when
it became clear no transmission lines were available.

China, the secretary said, sees "the economic opportunity that
clean energy represents. [It] largely missed out on the IT
revolution, but it is playing to win in the clean energy race." In
case any of the Senators missed his point, he hammered it home.
"America's competitiveness," he said, "is inseparable from our
energy policy."

Secretary Salazar's little wind farm is a good step in the right
direction, but the Nantucket project is notable merely because it
is the first wind farm to be placed on the Outer Continental Shelf.
In and of itself, the news of a mid-size wind farm would be left to
the trade journals. It won't have any significant effect on the
world's major wind-industry companies.

What Dr. Chu said about China's activities, however, will affect
the green-energy market. That nation will have 100,000 megawatts of
wind energy in 2020, up from about 20,000 now. And it's not only
the Chinese who are getting with the program. It's us, too. The
Obama Administration has put the full weight of the federal
government behind a game-changing initiative to upgrade the U.S.
electrical grid so as to more efficiently use power and fold
alternative power sources into the mix.

The President has already allocated $3.9 billion to smart-grid
projects. U.S. power producers installed 10,000 megawatts of wind
assets last year. China continues to spend money hand over fist to
expand and modernize its grid. What's more, wind has long been
embraced by Europe, which already has roughly 2,000 megawatts of
wind capacity but is forecast to have 40,000 megawatts by 2020.
That's enough to power 25 million households, far more than the
200,000 that the Nantucket project can support.

With +1,900% growth forecast for Europe, at least +400% growth in
China and continued development in the United States, wind turbine
manufacturers will be busy for the next decade. That's great news
for the two companies that dominate the market,
General Electric (
GE
)
and Denmark-based
Vestas (
VWDRY
)
. Vestas, despite the strong earnings potential of the wind-energy
sector, trades at less than 15 times its future earnings --
estimates that the company is likely to exceed given the worldwide
demand.

Vestas shares have offered lackluster performance during the past
year as the wind story seemed to fade and some projects were put on
hold during the recession. Now, as spending resumes and is
appearing to resurge, the demand picture seems to grow rosier with
each new project announcement. This undervalued stock appears
poised for real broken-field running.

Andy Obermueller
Editor: Government-Driven Investing

Disclosure: Andy Obermueller does not own shares of any security
mentioned in this article.